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guardian

02-15-2010, 10:22 PM

Foreign exchange reserves at the central bank .. conflict development or stability?

Date: Monday, February 15
Page name: economic

Abdul Hussein Al-Anbuge

(Foreign exchange reserves)

Foreign exchange reserves (Foreign exchange reserves) is literally deposits and bonds in foreign currency only maintained by the central banks and monetary authorities.

However, include the term in the common use of foreign exchange and gold reserves and the positions of the SDR (Special Drawing Rights) and the International Monetary Fund.

A more widespread use, preferably described as the official international reserves or international reserves.

And keeps the assets of the Central Bank reserves in various currencies, mainly from the U.S. dollar, including the euro and the pound sterling and the Japanese yen, and is used in the fulfillment of debts such as the local currency of which the holder is really the body that issued it and the various reserve banks deposits with the Central Bank by the government or financial institutions.

The official international reserves, is a means of international payments official, was previously only of gold and sometimes silver.

But in the framework of the Bretton Woods system, adopted the U.S. dollar as reserve currency, and also become part of the official international reserve assets of the States.

The year 1944-1968 was U.S. dollar convertible into gold by the Federal Reserve System, but after 1968, unique to central banks the possibility of the dollar's convertibility into gold of the official gold reserves, and after 1973 did not enable any individual or institution of the dollar's convertibility into gold of official reserves of gold.

Since 1973, it is no longer possible to convert any of the other major currencies into gold from the official reserves of gold.

Must be on individuals and institutions are now buying gold in private markets, like other commodities.

Even if the U.S. dollar and other currencies are no longer convertible into gold from the official reserves of gold, it is still working in official international reserves.

At a time when we all appreciate and respect the makers of monetary policy in the Iraqi Central Bank and realize their potential scientific, but the conflict economic schools not complain on one of the debates would not prevent the serious scientific department five years ago the Central Bank and the Economic Advisory for prime minister because it will deepen the knowledge of the result and expand economic decision which is the best Murad everyone, and can be viewed from the perspective of dialectical monetary stability, which may one day lead to economic development, missing since 30 years ago and posed by the tight monetary policy (deflationary) and economic illustrious patron Dr Ahmed Salih, adviser to the appearance of the central bank , and controversial broad economic development in every sense in the short term and medium term (broken for monetary imbalances and welcome) in order to break the cycles of underdevelopment and poverty and move the economy towards a wider spaces in terms of performance in the side of the real and the creation of entry and delivery of services and the restoration and reconstruction of damaged infrastructure (development) to lead by extension, to the stability of the monetary side, in the sense that monetary policy is to have a permissive (invasive) and the patron author of these lines.

As for management of the Iraqi Central Bank to its foreign exchange reserves could not have provided them a lot of the observations and reservations, including:

First: The indicators that are declared by the Central Bank, to reflect the proper management of foreign exchange reserves (given only on the assumption) that the monetary policy on (exclusively) to preserve the Iraqi dinar exchange rate (and on) with the support of the other macro economic policies in a country with a broad developmental gap, Under this assumption the monetary policy has worked successfully in Ahtiatitha investment of the assets of high liquidity and low risk and has achieved a return may seem relatively (accounted for more than economic) in the framework of (fiscal tightening), which is close to classical thought, which is that (money futile Delta), thereby The seizure of the performance of its funding is the cause of accumulated.

And a reason to rein in inflation derived from the monetary reasons they believe is contrary to reality.

Third: The foreign exchange reserves is an important indicator of a country's ability to repay foreign debt and maintain a high exchange rate of the coin, and I might give the impression (we do not need him) to external creditors and claimants of that our economic situation is fine with evidence that the absorptive capacity (our economy) saturated with the financial injection and became the central bank accumulates foreign reserves which is (are) in a country ruined structures and needs more than (400) billion dollars for reconstruction, and the second exchange rate is also overstated (the larger) as it is subject to a strict regime by hard-line (UAE Time) and not through a flexible exchange rate consistent with the constitutional and ideological desire for the new system in the restoration work of the market mechanism and remove the distortions and interventions in the work (the prices), then why not keep the bank on the exchange rate ($ 1 = 1500 dinars) in 2004 as it continued each year criticized the Ministry of Finance is less dinars per dollar, so arrived at (1 $ = 1170 dinars) in 2009 to mean that it gives (the ability of less government spending, the amount of dinar and see you more than the dollar as a reserve), and the small number of central banks in the world still believes that the foreign currency has accumulated (index) the Great to show the strength of its local currency, and this (simplified) is unjustified, as part of the adoption by many other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, employment levels ... etc) , in shaping the strength of the economy and its currency exchange rate accordingly.

Fourth: The central bank called in his messages as one of its reserves (foreign currency) rather than (dollar) and Ayad him to diversify reserves led to an innovative profit-taking, the task of being a Att (foregone conclusion), because there is a price to keep (a huge reserve), which is the price multi-faceted, including exposure to fluctuations in exchange rates in the markets, which are reflected in the gains or losses, may not be true (if the reserve was originally diverse) because the decline in the amount of the loss of some currencies appear in the gain rise in other currencies, unless the Iraqi Central Bank to make the reserve Cash (dollarised exclusively) a dispute regarding the fight against Mayalnh (dollarization), and the result may be Mkaspp is to maintain the purchasing power of reserves, the decline of the dollar exchange rate lately, but Ayad it (an additional net profit), so central bank is already successful and brilliant to predict trends in market exchange rates, this means that he had exercised function (master currency speculator), a function fought strongly (tough) when exercised by the people and that it will ease the financial sneak out to the speculative activities without the meaningful activities and sought to identify firmly margins profit from the sale and purchase of currencies and shutting down thousands of shops, which was the door of livelihood of those within the narrow margins in employment opportunities, the factors to be added to the high rates of unemployment contributed to the tightening of monetary policy significantly, however, are still to Analm if (profit) is achieved able to maintain the purchasing power of reserves or is it less than that in light of inflation rates did not decline significantly despite the financial crisis.

And back they paid Kalthassan real reasons of security and the global decline in aggregate demand (deflationary pressures) caused by the crisis and not the result of monetary policy.

continued

guardian

02-15-2010, 10:23 PM

Fifth: We agree with the Central Bank in the fact that (the lack of foreign currency reserves) and one of the so-called risk-risk countries (COUNTRY RISK) - and support to avoid risks, too - as stated in the article by Dr. Ahmad Saleh appearance in the newspaper of the Union, but this danger does not exist in Iraq, compared to a country such as Egypt reached its reserve of foreign exchange (34) billion U.S. dollars, while the total volume of foreign debt owed by (31.5) billion dollars, because the reserves in Iraq over the last six years has not decreased but also proves continues to increase, reaching more than (52) billion dollars currently being built and this Ghali, the central bank to avert the risk (is not there already), did not contribute to the security and the security of a remote relative to avoid other risks that can be summarized in the survival of the country under pain of defaults and declining operating and production, incomes and the growing gap between the foreign exports - imports (MX) and reflections on the gap between domestic savings - investment (SI) to increase of the phenomenon of economic rent (Dutch disease specificity of Iraq) and increasing leakage from the income cycle, and not central bank can provide a document indicating the size ( Alfrsip cost) resulting from the accumulation of reserve selection (semi-frozen) for the potential benefits for development, if the economic availability (ease financial) and contented himself by comparing Mojtzep for the failure of public expenditure (investment part of it especially which is limited) to move the economy in the real sectors may be right in his assessment of this part of the overall spending, but he did not carry out any developmental role in supporting private spending and in particular (private investment expenditure), which indicates the survival of monetary policy orbit specification centrally planned economy and thus mimic the powers of anti-economic transformation was not free from AIDS ( Cluster cash off government spending) in the direction (mass cash off total expenditure) under the economic orientation is intended to be for capital spending on a leading role.

VI: The government faced a crisis in the financing of contracts with electricity companies (GE and Siemens), which is supposed to add production capacity is estimated at (10200 megawatts) and a time when the public budget deficit "the Government has requested financing of such contracts through the issuance of government bonds The Central Bank will keep or marketing and acceptance of components within the legal reserve imposed on commercial banks, did not respond to the central bank to lend to the government of (2 billion $), note that the power front and rear links with all sectors of the economy and would be able to reduce production costs in all activities so as to make output a competitor to a large extent revolve the wheel of the demand for production and to expand employment and absorbs a significant part of unemployment and increasing access to distributed production elements and a powerful wave sweeping the country of recovery, but that the central bank as usual, preferring to preserve the foreign Ahtath - Is Alfrsip Compare the cost of the options on the Iraqi economy prior to the rejection - on the grounds that his responsibility is at stability in the currency exchange rate, Tjaja Bakannouna rigid in the independence of the Monetary Authority and isolate itself from development efforts may be that the stability of the day (long term) the ability to restore confidence in the Iraqi economy Vthrol him of capital for reconstruction, and this home imbalances in the monetary policy, we have to adjust the law of the Central Bank of swimmer with the nature of our economy, because the monetary stability at the level of underdevelopment, extreme poverty and destroyed infrastructure and high costs will not lead to the development in the medium term and even long term, while development is a strong payments and a large dose injection of funding will be able to find monetary stability in a shorter time.

VII: Take the Central Bank in the second half of 2009 steps in the right direction - the pressure exerted by the school where other economic role - leading to reduced tightening in monetary policy and wish to take greater strides in this direction, especially regarding the closure of investment outlets which were open to a friendly against commercial banks and specialized governmental and civil and lower interest rates, allowing banks to pay to the practice of lending more affordable and increase the money intended for lending by reducing the legal reserve ratio now 20% of the amount as well as measures to facilitate the prescription and borrow from a lender of last resort.

Especially the private banks that have a greater ability to manage (credit risk) and to give assurances on the grounds that lending takes place between (banks and the civil sector, Ahli) away from the government that they always feel that the borrowers (bulk of their money and deception is permissible), what if the central bank lent (2 billion), $ of the reserve to the banks without interest, I suppose it lent to productive sectors according to a real neat controls, the economy will spin the wheel and come out of deflation, then the dollar will be spent in the field of a sound investment (more than double the guide does not remain sterile), then the benefits of becoming a semi-liquid assets (secured) and differences in currency speculation Alajnip derived by the central bank is not of importance and here we believe that the cost Alfrsip to keep large reserves were too high for awhile.